For years, salary packages and benefits were seen as the primary levers of talent retention and performance. But new research suggests a far more strategic factor may be at play: how people actually feel at work.

According to a study published by Forbes, companies where employees report higher levels of workplace happiness consistently outperform the market over time. Data from investment analytics firm Irrational Capital shows that S&P 500 companies ranking in the top 20% for employee happiness delivered nearly 6% higher stock performance over an 11-year period compared to those in the bottom 20%.

Interestingly, traditional indicators such as pay and benefits had a much smaller impact. Firms that scored highly in compensation outperformed their peers by just 2%, reinforcing the idea that financial incentives alone are not enough to drive sustained value creation.

So what actually moves the needle?

Six factors linking workplace happiness to stronger market performance

1. Innovation culture
The strongest predictor of both employee happiness and long-term stock performance is innovation. When employees feel their ideas are welcomed and can influence how work is done, motivation rises. Inclusive decision-making builds trust, autonomy and a sense of ownership — key conditions for creativity and long-term value creation.

2. Direct and transparent leadership
Clear, honest communication from leaders matters more than certainty. Companies with strong direct management outperform competitors by more than 7% in share price, according to the research. Employees can handle complexity and ambiguity; what erodes trust is vague messaging or avoidance of difficult conversations.

3. Organisational effectiveness
Happiness increases when systems work and friction is reduced. Bureaucracy and inefficient processes drain energy and slow progress. Organisations that remove obstacles allow teams to focus on meaningful work — improving both engagement and execution.

4. Growth and engagement
Employees are more committed when they see opportunities to learn, evolve and take on responsibility. A culture that actively supports development helps people envision a future within the organisation, strengthening loyalty, motivation and performance.

5. Emotional connection at work
Human relationships remain critical — even in an AI-driven world. Research from Gallup, also cited by Forbes, shows that employees who form genuine friendships at work are more productive, more engaged and far more likely to stay. Strong connections foster psychological safety, collaboration and innovation.

6. Alignment between values and reality
Purpose only works when it is lived. When a company’s stated mission aligns with everyday behaviours, trust grows. When it doesn’t, credibility erodes. Alignment helps employees understand how their work contributes to a larger vision, reinforcing meaning and commitment.

A strategic signal for leaders

The findings send a clear message to executives and boards: employee happiness is not a “soft” metric — it is a strategic asset. In an environment marked by uncertainty, organisations that invest in culture, leadership quality and human connection are not just creating better workplaces; they are building more resilient and valuable businesses.

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Source: Forbes